Award Ceiling Dents Malpractice Rate Increase

May 22, 1986|By Rosemary Goudreau of The Sentinel Staff

When Maryland recently limited jury awards for pain and suffering compensation, the state's largest medical malpractice insurance company reduced a proposed rate increase by ''only about 6 percent,'' the company's president said.

Instead of seeking a 56 percent increase in malpractice premiums, the company has asked for a 50 percent increase, said John Spinella, president of Medical Mutual Liability Insurance Society of Maryland.

Insurance companies nationwide argue that jury awards for non- economic damages, or pain and suffering, bear much of the blame for spiraling insurance rates.

Spinella said his company is seeking a lower rate increase than planned because the Maryland law prevents juries from awarding more than $350,000 to someone for the pain and suffering of living with an injury or loss of a loved one caused by someone else's negligence.

''If the cap had been at $250,000, the potential savings would have been significantly greater,'' said Spinella, whose company insures about three- fourths of Maryland doctors. He said he did not know exactly how much a lower limit would save in premiums.

The Florida Legislature is considering a similar limit -- either $250,000 or $500,000 -- on jury awards for mental anguish. There is no attempt to limit compensation for wages or medical bills, the other major expenses in negligence lawsuits. Insurance officials in Florida have refused to speculate about how much money policyholders would save if pain and suffering awards are limited.

Across the country, states are passing laws to limit jury awards for non- economic damages in hopes of curbing insurance costs.

An April survey by American Medical News, the newspaper of the American Medical Association, showed that so far in 1986, 12 states have passed tort reform legislation and bills are pending in 31 states.

Yet the insurance industry does not guarantee that limiting jury awards for pain and suffering would reduce premiums. The industry only says ceilings would make the cost of claims more predictable and would help control rate increases.

''The problem is, say that someone hypothetically says a rate reduction of about 25 percent would be fair. Then all of a sudden that 25 percent is stuck in concrete, but other recommended changes on which that figure was based come out substantially different,'' said Hugh Ray, who represents the Florida Association of Domestic Insurance Companies.

When the Maryland insurance company rolled back its rate request by only 6 percent, Spinella said, ''The doctors were a little taken aback, but they have to recognize that our rates are the lowest of any other professional liability insurer in Maryland.

''I'm very confident that suits against physicians are going to increase, therefore the premiums charged will have to be increased.

''In the overall spectrum, a cap on non-economic damages at $350,000 is a relatively small step. . . . Obviously, a cap at a lower threshold would have had a bigger effect,'' he said.

Spinella said his company at first was going to request a rate increase of 86 percent and reduce it to 80 percent because of the limit on jury awards.

The Maryland Insurance Commissioner's office was surprised at even the 50 percent request, said Allen McGrath, an actuary.

McGrath said the state insurance commissioner, whose approval is needed before the rate increase is implemented, has not fully analyzed justification for the increase.

Spinella said it would be more difficult politically to ask for an 80 percent increase when 50 percent is temporarily adequate.

''The fact that we're willing to make do with only a 50 percent increase means that our insurers will save over $8 million and obviously, they will pass along the savings to consumers of health care in the state,'' he said.